Below-trend growth keeps rate hopes alive

By Colin Brinsden, AAP Economics Correspondent

The central bank has cut its forecast for economic growth and anticipates unemployment will rise over the next year.

Economists say the Reserve Bank of Australia's latest quarterly statement on monetary policy released on Friday will keep alive hopes for a cut in the official cash rate.

But Treasurer Wayne Swan says there are encouraging signs of a transition in the economy from mining to non-mining investment.

"We are seeing a revival, particularly when it comes to investment in housing," he told reporters in Brisbane.

The RBA also fleshed out Tuesday's decision to leave the cash rate unchanged at its first board meeting of the year.

"Given the significant monetary stimulus already in place, and signs of lower interest rates having some of the expected effects, the board judged that the stance of monetary policy remained appropriate for the time being," it said.

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The bank has reduced the cash rate by 175 basis points since November 2011, and at three per cent it's now at the lowest level since the depths of the 2008-2009 global financial crisis.

Its latest set of forecasts shows the RBA believes gross domestic product (GDP) will expand by 2.5 per cent in 2012/13, instead of 2.75 per cent. This would be well below trend growth of 3.25 per cent.

The growth downgrade reflects the impact of the mining investment boom reaching its peak, government fiscal consolidation and the persistently high Australian dollar.

"Employment growth is forecast to remain modest over the course of this year, before rising gradually over 2014," the RBA said.

"The unemployment rate is expected to edge higher over the next year or so."

Westpac chief economist Bill Evans said with growth now forecast to be substantially below trend, there was adequate scope for a further cut in interest rates.

The RBA also lowered its inflation forecast for 2012/13 to three per cent, from 3.25 per cent.

"By the end of 2013, headline inflation is expected to fall back to around the middle of the (two to three per cent) target range as the effects of the introduction of the carbon price largely drop out," it added.

As well, it said a recent rebound in bulk commodity prices was likely to prompt a small increase in Australia's terms of trade in the early part of this year.

This is good news for the treasurer who on Friday, after much argy-bargy, released the revenue detail of the government's controversial mining tax.

It raised just $126 million in its first six months.

The minerals resource rent tax was forecast to raise $2 billion in the first year.

"It's clear revenues from resource rent taxes have taken a massive hit from the impact of continued global instability, commodity price volatility and a high dollar," Mr Swan said.

Shadow treasurer Joe Hockey said the government had locked in expenditure against revenue that wasn't there.

"They were spending the Christmas bonus, and the Christmas bonus is now not there," he told reporters in Sydney.